NZX Limited · NZX:NZX
NZX — Investor Day (November 2022)
79 slides from NZX's investor day presentation, Nov 24, 2022
Slide 1: NZX Investor Day
NZX Investor Day 24 November 2022
Slide 2: Today's Agenda
Today’s Agenda Important notice Welcome & Business Update 9.30am This investor presentation should be read in conjunction with NZX's other periodic and continuous disclosure announcements, and the financial statements in the 2022 Interim Report, which provides additional information on many areas co
Slide 3: Business Update
Business Update Mark Peterson Chief Executive Officer
Slide 4: Key messages you should take away from today – the NZX investment case
Key messages you should take away from today – the NZX investment case The Capital Markets opportunity: Since 2017, we have rebuilt our capital markets platform and have still achieved growth in a challenging 2022. We have the building blocks for further opportunities and growth and as markets recov
Slide 5: Our latest acquisition (QuayStreet) provides another step change towards achieving scale
Our latest acquisition (QuayStreet) provides another step change towards achieving scale & operating leverage - in Smartshares Whilst scale has been achieved organically over time, step change acquisitions provide the opportunity to materially change the average cost by: • Spreading the fixed costs
Slide 6: The acquisition of QuayStreet will provide additional channels to market and $1.6bn in FUM
The acquisition of QuayStreet Asset Management Limited (QuayStreet) will provide additional channels to market and $1.6bn in FUM… Smartshares to acquire the management rights of QuayStreet Asset Management Limited (QuayStreet) • Acquiring $1.6 billion1 in funds under management for upfront considera
Slide 7: Expected to contribute between $3.3 - $3.6m to NZX FY23 operating earnings
…and is expected to contribute between $3.3 - $3.6m to NZX FY23 operating earnings Smartshares to acquire the management rights of QuayStreet Asset Management Limited (QuayStreet) • Attractive opportunity for NZX to acquire a high-growth fund manager (aligned with a powerful private wealth network)
Slide 8: We are guided by our core purpose, vision and strategy
We are guided by our core purpose, vision and strategy… Our Purpose Our Values Committed to connecting people, business and capital We Deliver everyday Creative Our Vision A trusted New Zealand business, delivering sustainable wealth, Integrity value and opportunities for all Open Our Strategy Growi
Slide 9: NZX's focus is to create value while delivering a positive impact on society and the environment
…and NZX’s focus is to create value while delivering a positive impact on society and the environment Our ESG Strategy runs through the heart of our business – as the operator of New Zealand’s stock exchange and markets, as a financial services and technology business, and as a regulator. In particu
Slide 10: Doing what we said we would, delivering strong growth prospects and scalability
We are doing what we said we would, delivering a business with strong growth prospects and scalability… NEW ZEALAND’S EXCHANGE 2018 Removed blockages 2019 /2021 Rebuilt for growth 2022 Demonstrated resilience • Sold the non-core businesses • Enhanced NZX’s IT capabilities, security services improved
Slide 11: ...and the numbers reflect the strength of our strategy
…and the numbers reflect the strength of our strategy 2017 (Sept YTD) 2022 (Sept YTD) Growth FINANCIAL PROFILE REVENUE $46.6m $70.9m +52% OPERATING EARNINGS FY = $27.2m FY Guidance = $33.5–$38.0m +23% to +39% CAPITAL RAISED $6.2bn $16.6bn +167% VALUE TRADED $27.2bn $29.0bn +6.3% DATA REVENUE $9.6m $
Slide 12: Current market conditions are part of a macro environment which has evolved significantly
The current market conditions are part of a macro environment which has evolved significantly in the past year… « Macro-economic shifts impacting cost of capital « Tight labour market impacting costs 01 Economic « Shift in cycle in medium term (2024) should be good for NZX as growth/recovery phase i
Slide 13: Market environment has highlighted opportunities to add products/scale
…and the current market environment has highlighted opportunities that could add products/scale, and would strengthen our revenue base Further maturity in our cash market function also required – through alternative market venues and advanced connectivity, while leverage and scale required in techno
Slide 14: Our strategy to 2027 – round out our product offer in Capital Markets
Our strategy to 2027 is simple – round out our product offer in Capital Markets and drive scale and operating leverage across the businesses Growing, Connecting, Creating Value “A trusted New Zealand business, delivering sustainable wealth, value & opportunities for all” Capital Markets Smartshares
Slide 15: What you will hear today
What you will hear today…. The work since 2017 has reset our capital markets business and it is showing strength through market cycles. We have built a robust platform for further growth We have opportunities to strengthen our revenue base through rounding out our product offering in line with our p
Slide 16: Capital Markets Origination
Capital Markets Origination Sarah Minhinnick General Manager
Slide 17: Good growth in capital raising activity showing strength of the public market
We have seen good growth in capital raising activity showing the strength of the public market through cycles The goal of NZX is to provide business with access to capital to fuel their growth & contribution to the economy. We have seen a steady upward trend in total capital listed and raised on mar
Slide 18: All pathways to listing are working well – new issuers joining NZX in 2022
All pathways to listing are working well – 7 new issuers joining NZX in 2022 Promoting all pathways to listing, including direct listings, were a key part of Capital Markets 2029 1 x Foreign Exempt 1 x Direct Listing $8.01 billion Listing application Market Capitalisation received, pending NZ RegCo
Slide 19: Connecting with prospects in a large addressable market
We are driving forward on connecting with prospects in a large addressable market 1600 1500 1400 1300 1200 Total addressable market* 1100 A broad addressable market exists providing significant opportunities to grow off Adressable Market 1000 the back of a now embedded origination model Number of se
Slide 20: Driving this growth through an embedded origination model
We are driving this growth through an embedded origination model T R A N S F O R M AT I O N O F E X I S T I N G R E L AT I O N S H I P S , P R O S P E C T I N G A N D C O N V E R S I O N S I N C E 2 0 1 7 Rebuilt True Embedded Limited Customer Origination Origination Relationships Connections Model
Slide 21: Actively connecting participants in the capital markets ecosystem here and globally
Actively connecting participants in the capital markets ecosystem here and globally… Legal Capital & advisers NZX brokers with distribution networks Networks Partnerships 21
Slide 22: Delivering on NZX objectives from Capital Markets 2029
…and delivering on NZX objectives from Capital Markets 2029 to reach prospects and support existing issuers Capital Markets 2029 recommended NZX increase its marketing efforts to capture the significant opportunity. This marketing activity extends to supercharging our digital content offering We sup
Slide 23: Developing a vibrant capital raising business across equity, funds and debt
We are developing a vibrant capital raising business across equity, funds and debt, driving scale across all areas of issuance 2022 2027 Aspirations • 339 listed securities • 400 listed securities • 27% of NZDX bonds with • 35% of NZDX bonds with GSS a GSS designation Marketing Transformation Comple
Slide 24: This is how we will get there
This is how we will get there Optimise digital content creation and grow Complete Marketing audience to support issuers’ investor Offering engagement and the NZX origination model Grow the New Zealand listed debt market to Expand Debt >$60 billion. Target more new names for debt Offering issuance an
Slide 25: We have come a long way in our support of existing customers
We have come a long way in our support of existing customers and bringing new business to market 25
Slide 26: Capital Markets Development
Capital Markets Development Jeremy Anderson General Manager
Slide 27: Progress since 2017 has significantly improved the health of our market
Progress since 2017 has significantly improved the health of our market, with opportunities out to 2027 $ 31.2 billion YTD Oct total traded value Oct 17 - $30.76 bn (+1.4%) New Participants 2 Cash Trading, Clearing & Depository 2 Depository 65 20.2 billion % YTD Oct on-market traded value FY2017 = 4
Slide 28: Delivery of key initiatives since 2017 is driving growth
Delivery of key initiatives since 2017 is driving this growth and has established the platform for the next level of development Grow Broker Participants Actively managing the pipeline of prospective Participants including trading, clearing and depository participants Build strong Grow market wide I
Slide 29: Overall activity continues to grow through market cycles
Overall activity continues to grow through market cycles, driving liquidity & revenues Value Traded / Cleared ($'b) 60 50 40 Increased on-market trading is key to driving new participation, particularly globally, and 30 increasing overall transparency and liquidity in 20 our market 10 - Total value
Slide 30: Global footprint being extended for new products and new investors
Global footprint being extended in relevant jurisdictions in preparation for new products and new investors… Professional Terminal x Country Professional terminal usage is a good proxy for where the 8000 interest in our market lies: 7000 Significant professional terminal growth in APAC jurisdictions
Slide 31: Building blocks to broaden our product set and drive scale
…along with delivering specific building blocks to broaden our product set and drive scale… 2022* Fragmented Market Venue Optionality 2027 Aspirations • $31.2 billion value traded (Oct YTD) • $60 billion value traded • 65% on-market trading Advanced Investment NZX20 Futures Project • 80% on-market t
Slide 32: This is how we will get there to drive regional relevance
…and this is how we will get there to drive regional relevance Provide differentiated venues for segmented order types (including large Differentiated Liquidity Venue Optionality anonymous deals with NZX Dark) adding value to off market trades. Pools Advanced Investment Attracting more liquidity thr
Slide 33: Market Operations
Market Operations Felicity Gibson General Manager
Slide 34: Continuous enhancement in capital market operations will drive scale and revenue
Continuous enhancement in capital market operations will drive scale and revenue… We will… Broaden our earnings base and add scale to our settlement and clearing activities Risk Management Drive post trade efficiencies through automation and operations development to support global and local partici
Slide 35: Clear on the objectives to getting there
…and we are clear on the objectives to getting there Objectives Supports Reduces operational risk for all stakeholders in a growing market and Clear codification of requirements, for straight through processing Automation allows automation to reduce market costs Automation of front end market operat
Slide 36: Our aspiration: A New Zealand market aligned with global standards
Our aspiration: A New Zealand market aligned with changes in global standards 2022 2027 Aspirations • 1 global • 3 global custodian participants custodian participant At scale capability and Fragmented Market optimised for market efficiency • 28 fully automated corporate • 14 semi-automated actions
Slide 37: Strategic Delivery
Strategic Delivery Nick Morris General Manager
Slide 38: Strategic Delivery drives new and emerging growth opportunities
Strategic Delivery drives new and emerging growth opportunities for NZX, continually developing our product offering These opportunities are synergistic to NZX’s broader business and built on the New Zealand advantage DERIVATIVES • SGX-NZX Global Dairy Derivatives Agricultural export market leadersh
Slide 39: In dairy, NZX is positioned across physical, financial, and data pillars
DAIRY DERIVATIVES In dairy, NZX is now positioned across all key pillars – physical, financial, and data - to drive growth NEW ZEALAND’S EXCHANGE DATA DATA PHYSICAL MARKET FINANCIAL MARKET DATA (GDT shareholding) (Strategic partnership with SGX) Dairy Data and insights Settlement Market analytics Pr
Slide 40: SGX partnership is achieving objectives in financial markets
DAIRY DERIVATIVES In the financial markets, the SGX partnership is achieving objectives, and progress in developing GDT has begun under its new ownership structure 5x World 24.3m 5x NZ 11.3m Active Clearing Participants1 From 4 to 8 1x NZ Volume and Open Interest Growth 2.25m Average Daily Volume (l
Slide 41: Dairy derivatives are global products; focus on local risk management products
Dairy derivatives are global products on a global platform…our focus is also on developing local infrastructure and risk management products We know that equity derivatives are a vital component in delivering more stable revenue streams as well as multiple other benefits across an exchange business
Slide 42: Equity derivatives revenues offset challenging markets
EQUITY DERIVATIVES In particular, we understand the core nature of these revenues in mature exchanges and how they provide offset revenues in challenging markets... A broader market offering provides a revenue ‘hedge’ International Exchange Comparison: Index Futures Contracts and Equity Value Traded
Slide 43: Positive impacts of an equity derivatives market across the group
EQUITY DERIVATIVES …and how the positive impacts of an equity derivatives market reach across the group New sources of revenue Participant, trading and clearing, data, stock borrowing and lending Builds a globally aligned exchange fees and additional cash market fees Becoming aligned with global tra
Slide 44: In equity derivatives, broad support and pre-conditions for a successful launch
EQUITY DERIVATIVES In equity derivatives, we have broad support and the pre-conditions for a successful launch Why the timing is right: The goal to re-establish a liquid Index Futures market derives from improved underlying market conditions, and an extensive process to bring together the required i
Slide 45: Extension of clearing infrastructure supports other domestic product opportunities
The extension of our capital markets clearing infrastructure and product set supports other domestic product opportunities The Carbon and Energy markets provide product opportunities that are strategically beneficial to New Zealand and to which NZX can add significant value as a trusted and establis
Slide 46: Energy markets: drive towards 100% renewable electricity
ENVIRONMENTAL In energy markets, the drive towards 100% renewable electricity will facilitate our transition into supplying an integrated market operator platform The market environment is changing… …creating new upside opportunities for NZX Decarbonisation is fueling electricity demand... Existing
Slide 47: Carbon markets: entry into primary NZU auctions
ENVIRONMENTAL In carbon markets, successful entry into the primary (NZU auctions), positions NZX to further assist with secondary market liquidity development Globally, carbon and ESG markets are becoming an attractive investment opportunity to achieve decarbonisation and deliver social benefits The
Slide 48: The next 5 years seeks growth across the four pillars
The next 5 years seeks growth across the four pillars… The pursuit of scalable growth opportunities both globally and locally are to be supported by structuring lower risk earnings profiles in New Zealand’s Carbon and Energy markets 2022 Nascent Global Dairy Mature (>1x physical) global dairy 2027 D
Slide 49: This is how we will get there
…and this is how we will get there Mature Global Dairy Derivatives Product development and education to attract new brokers and end users + Market further development of the settlement mechanism (GDT) Building the infrastructure required to attract a more global participant base for Liquid Index Fut
Slide 50: Smartshares
Smartshares Hugh Stevens Chief Executive Officer, Smartshares Ltd
Slide 51: Smartshares is NZ's leading passive investment manager
Smartshares is NZ's leading passive investment manager and is well positioned for further growth 8 35 70 Smartshares is a licensed Fund Smartshares has 35 exchange Members in the Smartshares Manager with 8 registered traded funds listed on the NZX, team schemes incl. Smartshares accounting for more
Slide 52: Smartshares awarded fund manager of the year
Smartshares awarded fund manager of the year Research IP Fund Manager Of The Year Awards 2022 Fund Manager of the Year 2022; and Global Equities Fund of the Year - Smartshares US 500 Australian Equities Fund of the Year - Smartshares Australian Top 20 Longevity Award - Smartshares US 500 52
Slide 53: The Smartshares business model has become more complete since 2017
The Smartshares business model has become more complete since 2017 Customers Diverse, multi-channel 1 distribution Segments INSTITUTIONS SPONSORS RETAIL Vertically integrated Consultants, Advisers, Employers, Iwi & Direct online, 2 (we manufacture and Channels Direct Pacific platforms, brokers & fin
Slide 54: Competitive advantages that drive leverage and growth in FUM
We hold competitive advantages that help drive leverage and growth in FUM and revenues… MULTI CHANNEL LICENSED FUND MANAGER IN-HOUSE ADMIN & IT PRODUCT DIVERSITY MARKET POSITIONING VERTICAL INTEGRATION Diverse customer base from direct and High barriers to indirect channels and entry, significant mu
Slide 55: Exceeding expectations in key areas
…and this is showing through in the key areas where we are exceeding expectations Funds Under Management Net Cashflow Cash Flows ($'million) 1,200 FUM 31 Oct 2022: 1,000 $8.1 billion 800 600 400 200 - 2017 2018 2019 2020 2021 2022 Oct YTD FUM Net Cashflow Funds Under Management (FUM) Net Cashflow su
Slide 56: Benefitting from global trends driving broad based growth
We are also benefitting from global trends driving broad based growth • Option to expand regionally. Expertise in cross-border fund distribution: Asia Region Funds Passport and Trans-Tasman funds portability Emerging Asia • Option to cross-list high-yield NZX ETFs across the region • Proven leadersh
Slide 57: Ambition to grow into a full service, automated, digital fund manager
Our ambition is to grow into a full service, automated, digital fund manager 2027 Full in-house systematic investment Passive investment management management with ESG Mid-tier KiwiSaver Full-service financial wellbeing solution Manual customer service model Digital customer service model Management
Slide 58: The Smartshares aspiration
The Smartshares aspiration… All investors have access to trusted, cost effective, financial solutions to build a future unconstrained by financial worrie s Lead in Systematic Lead in Financial Establish an Efficient Support 1 Products 2 Solutions 3 Platform 4 NZX 2.0 Lead in Systematic Lead in Finan
Slide 59: Multiple options to deliver further margin growth and reduce operating risk
We have multiple options to deliver further margin growth and reduce operating risk Lead in Systematic Lead in Financial Establish an Efficient Support 1 Products 2 Solutions 3 Platform 4 NZX 2.0 • Further in-housing of investment • Deliver mass-market sales capability • Further develop our staff cu
Slide 60: Wealth Technologies
Wealth Technologies Lisa Turnbull CEO - NZXWT
Slide 61: NZX Wealth Technologies is a high growth business opportunity
NZX Wealth Technologies (NZXWT) is a high growth business opportunity over the medium term Key metrics Aligned to NZX Purpose > The NZXWT platform provides core market infrastructure to the NZ financial advice community, aligning to NZX’s FUA purpose of connecting people, business and capital everyd
Slide 62: NZXWT has onboarded large clients and has a high conviction pipeline
Throughout its history NZXWT has successfully onboarded several large clients and has a high conviction pipeline driving FUA growth targets FUA growth largely driven by Funds under administration potential clients of medium (Monthly, NZ$bn) FUA growth driven by a large conviction contracted client 8
Slide 63: Structural tailwinds expected to drive growth within the investment platform market
Structural tailwinds are expected to drive future growth within the investment platform market… Structural KiwiSaver and demographic tail winds to Pension assets as a % of GDP (%) drive long term industry growth • NZXWT was the first investment platform to provide 229% KiwiSaver self-select function
Slide 64: Key competitive advantages to capitalise on structural tailwinds
…and we hold key competitive advantages that help us capitalise on structural tail winds… STRONG SERVICE ETHIC COMPLIANCE FEATURE RICH FUNCTIONALITY FLEXIBILITY OF ACCESS MODERN TECHNOLOGY STRONG NZ OWNERSHIP Customer centric service ethic. Strong NZ regulatory and reputation for tax compliant, succ
Slide 65: ...and the pipeline of growth is strong
…and the pipeline of growth is strong High to Medium Conviction Pipeline Customer interest in the platform is strong 2022 development laid the foundation for a significant Saas onboarding to occur over 2023 and 2024 There is a significant focus on attracting Adviser Groups to the full operations and
Slide 66: Significant FUA secured
Significant FUA secured Large SAAS on-boarding project underway – strong focus on growth in Custody and Operations segment Split between FUA Saas & Full Custody & Ops Service $bn 2023 will have a strong sales focus on Custody & Operations service There will be significant FUA growth from SaaS client
Slide 67: The operating model delivers revenue at both ends of the FUA scale
The operating model delivers revenue at both ends of the FUA scale ► Current FTEs 77 – this level of resourcing enables the migration growth path ► Once migration growth path is complete in a number of years time, and we reach steady state (business as usual), we estimate a lower level of FTEs ► Gro
Slide 68: The next 5 years: drive FUA growth
The next 5 years: Drive FUA growth by maintaining leading edge technology, functionality, strong operational service and risk management 2027 FUA $10.1b FUA $40b - $70b Strong risk and compliance environment with Automated controls to further enhance the embedded frameworks and controls strong risk
Slide 69: This is how we will get there
…and this is how we will get there Complete current contracted FUA onboarding project over 2023 & 2024 FUA $40b - $70b along with a strong focus on sales to the full custody & operations market and secure another large SaaS client Understand the regulatory environment and obligations then integrate
Slide 70: NZX Value Proposition
NZX Value Proposition Graham Law CF&CO
Slide 71: Market conditions have impacted some revenues; costs limited or deferred
Current market conditions have impacted some of our revenues, and costs are being limited or deferred, we don’t believe this will have a long-lasting impact 2022 Targets - Performance YTD External dependencies 2022 SEPT YoY % YTD Grow Markets - Issuer Capital raised • Listing ecosystem is dependent
Slide 72: Revenues remain strong with diverse sources not exposed to market capitalisation
NZX’s revenues have remained strong, we have a diverse range of revenue sources the majority of which are not exposed to market capitalisation Business Unit Revenu Revenue Driver e H1-22 % Capital Markets Origination Market Cap at 31 May, largely fixed base with some variable to market cap movements
Slide 73: Actively managing or replanning activities due to cost inflation pressures
We are actively managing or replanning activities due to cost inflation pressures Gross cost base (i.e. pre capitalised personnel and overheads costs) is analysed in the graph opposite • Personnel costs represent the majority of the gross costs (circa 67%) – with cost increases being driven by: • hi
Slide 74: CAPEX growth driven by Smartshares and Wealth Technologies
CAPEX growth is driven by Smartshares (ASB SMT integration from Q4-22 to Q3-23) and Wealth Technologies (migration activity) as well as our related increased accommodation requirements Trading, Clearing and Energy Systems CAPEX • Trading, clearing and energy systems CAPEX driven by specific system l
Slide 75: NZX's share price impacted by perception of tough market conditions
NZX’s share price has been impacted by the perception of how the current tough market conditions impact NZX’s revenue plus other factors including…. February / March rights issue Low retail entitlement participation due to uncertainty resulting from the Ukraine / Russia war commencing Subsequently s
Slide 76: Sum of the Parts valuation
A Sum of the Parts valuation is how we look at the overall value of NZX, if we deliver on our strategy then the SOTP is higher than the current share price Analyst Consensus: Sum of the parts valuation: • post HY-22 results announcement (in August 2022) • to assist we provide business unit informati
Slide 77: Wrap Up
Wrap Up Mark Peterson CEO
Slide 78: Summary – the NZX investment case
Summary – the NZX investment case The Capital Markets opportunity: Since 2017, we have rebuilt our capital markets platform and have still achieved growth in a challenging 2022. We have the building blocks for further opportunities and growth and as markets recover, we expect to see capital markets
Slide 79: Thank you
Thank you The information provided is a guide only and intended for general information purposes. It does not constitute investment advice Any representation or statement expressed in this information is made in good faith on the basis that NZX Limited (NZX) of any of ts related companies is nol abl